Recently, there has been a good deal of speculation about whether the so-called “Rule of Two” will continue to exist after the Federal Acquisition Regulation (FAR) overhaul that is currently ongoing. Specifically, whether FAR Part 19 will continue to have such a rule, given it is not expressly stated in the Small Business Act (the Act) (but it is certainly intimated that such a rule is the best way to ensure that the statutory small business goals are met). However, I believe that if we, as a nation, are truly looking to put America first, it is critical that the Rule of Two be included in any FAR Part 19 overhaul and that it be immortalized in the Act as some in Congress intend to do this year or next.
For those who are unaware of what the Rule of Two is and how it operates, it essentially states that if there are two or more small businesses that can perform a piece of federal government contracting work at a fair and reasonable price, then such work must generally be set-aside for small business competition and not competed amongst large companies. See FAR 19.502-2. This rule ensures that the federal government performs market research prior to soliciting work to determine if two or more small businesses exist and, if so, that work must be set aside for exclusive small business participation in the procurement. This rule is meant to ensure that the federal government has a clear path to meet the statutory procurement goals outlined in the Act, which generally requires that 23% of all federal government contracting dollars be awarded to small business prime contractors. For the reasons noted below, this is not only a laudable goal and a statutory directive from Congress, but also the strongest path to “Make America Great” and “put America first.”
The Trump administration expressed a strong preference for American companies and ensuring that the federal government takes all necessary steps to favor American citizens and businesses in all areas, including procuring goods and services from the federal government. There is no better way to achieve this goal than to buy such goods and services from small businesses, given that the Act and the Small Business Administration (SBA) regulations require that most small business types be both majority-owned and controlled by U.S. citizens. In contrast, most large and publicly traded firms have widely dispersed ownership and control, making it more likely that non-U.S. citizens benefit from U.S. tax dollars expended on contracts to such firms.
When the federal government purchases goods and services from qualified small businesses, those dollars are paid to U.S. companies—companies that are not only based in the U.S. and use U.S. citizen labor to perform the work, but are also majority owned and controlled by U.S. citizens. Indeed, the SBA regulations governing the Small Disadvantaged Business Program (the 8(a) Program), the Woman-owned Small Business (WOSB) Program, the Service Disabled Veteran-Owned Small Business (SDVOSB) Program, and the Historically Underutilized Business Zone (HUBZone) Program, clearly state that, generally and most commonly, for firms to qualify for such a designation, SBA has to review and certify that U.S. citizens own at least 51% of the company and that such individuals control the company. Further, even when it comes to small businesses more broadly, SBA regulations require companies to clearly show a nexus to the U.S., including hiring U.S. citizens, paying taxes, and making meaningful contributions to the U.S. economy. All of these goals are how one can truly put America first and Make America Great.
The awarding of contracts to publicly-traded firms with foreign ownership all over the world, or to mega-corporations owned by foreign nationals, simply syphons money and resources—taxpayer dollars—away from U.S. citizens and into the hands of foreign nationals and foreign governments. Such actions are antithetical to the Trump administration’s broader policy goals and undermine the strides the administration is attempting to make to bring back domestic sources of supply of all kinds.
Indeed, failing to mandate the Rule of Two in the Act or to ensure it continues to be enshrined in FAR Part 19 would directly contradict the Trump administration’s policy directives and undermine the administration’s goals. I submit that any member of Congress who fails to vote to codify the Rule of Two is not only harming small businesses but also actively sabotaging the administration’s policies and the broader policies of the United States as established in the Act itself. Further, it is clearly in the best interests of the United States to ensure that funds entrusted to the government by the American taxpayer are spent, to the maximum possible extent, with U.S. firms and that the dollars themselves are paid to U.S. citizens both in the form of those who own and control the businesses performing the work, as well as the employees who work for such companies. This not only furthers the broader policies of putting America first, but also ensures that federal spending is recirculated in the U.S. economy. In turn, this strengthens downstream markets like commercial real estate, restaurants, and the myriad of service providers who assist such companies on a daily basis—most of which are, themselves, small businesses owned and controlled by U.S. citizens and who hire U.S. citizens to perform the work required.
Moreover, for every dollar spent with these companies, they pay a portion of that directly back to the U.S. federal government in the form of federal taxes—not just the federal government contractor but also the employees of such contractors, the companies the federal contractors hire to support them, their employees, and down the line – giving a direct return on that investment. How better to put the United States of America, and Americans themselves, first. As we noted here, the time is now for every small business, and truly every American, to stand together and demand that Congress act to not only support small businesses across this great nation, but also show that they truly wish to Make America Great and that this is not merely an empty slogan. Codify the Rule of Two in the 2026 National Defense Authorization Act and let’s make America great together by serving small businesses in every state and in every sector of the economy.
PilieroMazza continues to monitor shifts in the procurement marketplace. If you have questions related to the “Rule of Two” policy and its potential elimination, please contact Cy Alba or another member of PilieroMazza’s Government Contracts Group. Also visit our Government Contract Executive Orders resource center for additional coverage.
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